Question 1 (Dec 2013)

Samsul planned to travel to Syria, Oman and Jordan from 10th September to 10th October 2013. On the
30th June 2013, he went to Indah Travel Consultant, a travel agency. He paid deposit of RM5,000 to buy
a travel package for RM18,500. The balance of the package price was to be paid on the 5th September
2013. On the 30th August 2013, the Minister of Home Affairs issued a statement strongly advising
Malaysians not to travel to Syria due to the political instability in that country. As a result of that
information, on 2nd September 2013, Samsul decided to cancel his travel reservation with Indah travel
Consultant and asked for his RM5,000 deposit to be returned. The agency refused to return his deposit
and insisted that the travel plan to Jordan and Oman could still be carried out.

Siti, a law student has advised Samsul that under the law, his contract his frustrated.

Do you agree with Siti? With reference to case law and statutory provisions, discuss Samsul’s legal
position under Malaysian Law.

The issue is whether the statement issued by the Minister of Home Affairs that strongly advising
Malaysians not to travel to Syria due to the political instability in that country had made contract
between Samsul and Indah Travel Consultant to discharge by frustration.

Discharge of contract means when a contract is brought to an end, dissolved or terminated. In Malaysia,
the doctrine of frustration is found in sec. 57(2) of the Contract Act 1950, whereby after the contract is
made, the act becomes i) Impossible and ii) Unlawful due to some event which the promisor could not
prevent. In such circumstances, the contract will then become void. Section 2(i) of the Contract Act 1950
stated that a contract which ceases to be enforced by law becomes void when it ceases to be
enforceable. In a contract that is frustrated, the law treats the contract to be terminated automatically
and forthwith due to the frustrating event. A contract that becomes void under section 57(2) has a relief
provided under section 57(3) and section 66 of Contract Act 1950. However, a self-induced and caused
by a default by a party will not discharge the party from the contract

Test for frustration as applied by the Malaysian courts was formulated by the House of Lords in Davis
Contractors Ltd v Fareham UDC where Lord Radcliffe stated that frustration occurs when without default
of either party a contractual obligation becomes incapable of being performed because if it were
performed, it would render it a thing radically different than that which was contracted. Moreover, Lord
Denning stated that the contract must first be construed to see whether the parties have provided for
the situation that had arisen. If they had, there is no frustration and the contract applies. If they have
not, then the new situation must be compared with the old situation which they provided and the
difference must be examined. The fact that it has become more difficult or more expensive for one party
is not sufficient to bring about a frustration. It must be positively unjust to hold the parties bound.

For the doctrine to be applied, elements of the doctrine of frustration must be fulfilled. Firstly, there
occurs a supervening event after the contract is made where such event that is unexpected. In the case
of Goh Yew Chew v Soh Kian Tee where the appellants agreed to construct two buildings on land
belonging to the respondent. The respondent paid $5000 to the appellants as earnest money. It was
found that owing to an encroachment of a neighbour’s house into the land, it was not possible to
construct the buildings according to the plan. The respondent claimed for the return of the $5000.
It was held that in the circumstances, it was impossible ab initio to perform the contract. The
respondent was entitled to the balance of the deposit after deduction of all reasonable expenses spent.

Secondly, the supervening event must cause a fundamental or radical change to the nature of the
contractual rights and obligations. In the case of Davis Contractors Ltd v Fareham UDC where the
appellants tendered for a building contract, whereby they agreed to build 78 houses for the respondents
within 8 months. Due to a shortage of labour, the work took 22 months and ran over budget. The
appellants argued that an overriding condition of the contract was that there should be adequate
supplies of material and labour. Thus, the shortage of skilled labour and adequate materials caused the
contract to be frustrated. It was held that the contract was not frustrated as the fact that there had
been an unexpected turn of events which render the contract more difficult than had been
contemplated was not a ground for relieving the contractors of their obligation.

Third is, neither party should be responsible for the supervening event. Neither party must be the
instigator of the frustrating event. In the case of Ocean Tramp Tankers Corporation v V/O Sovfracht,
where the owners of the Eugenia let her to the charters for a trip to India through the Black Sea. During
the negotiations, both parties realised that there was a risk that the Suez Canal might be closed.
However, they came to no agreed terms to meet that possibility. The vessel embarked on its journey
and subsequently entered Suez Canal, where she became trapped due to the canal being blocked. The
charterers claimed that the charter party had been frustrated by the blocking of the canal. It was held
that the doctrine of frustration was inapplicable as not only had the parties foresaw that the Suez Canal
might become impassable; they also failed to make a provision for it.

Next is, the supervening event must not have been contemplated by the parties when they entered into
the contract, and therefore, there must be no provision in the contract designed to deal with it. Per Lord
Denning in The Eugenia “Not only does the doctrine apply when the supervening event is unforeseen or
unexpected, but also when the parties have made no provision for it in their contract.” Another case is
National Carriers Ltd v Panalpina (Northern) Ltd. Plaintiffs leased a warehouse to the defendants for 10
years from 1974. The only vehicular access to the warehouse was by a street which the authorities had
closed in mid-1979 due to the dangerous condition of a derelict Victorian warehouse opposite the one
leased to the defendants. The period between the closure of the street and its reopening was 20
months, during which the warehouse was useless for the defendants. The plaintiffs claimed for unpaid
rent, and the defendants argued that the lease had been frustrated by the events that occurred. It was
held that no frustration had occurred as the likely continuance of nearly three years of the term after
the interruption makes it impossible for the lessee to contend that the lease had been brought to an
end. Frustration takes place when the supervening event significantly changes the nature of the
outstanding obligations/rights under the contract which the parties could have contemplated at the
time they contracted.

Finally, it must be unjust to hold the parties to the contract as agreed upon. Circumstances under the
doctrine of frustration was explained in the case of Khoo Than Sui v Chan Chiau Hee (occurrence of
storm). The plaintiff and the defendant entered into a verbal contract whereby the defendant agreed to
tow the plaintiff’s logs by sea to his log pond at Sandakan. When the towing began, there were 82 logs.
At the end of the first day, the towing was suspended due to stormy weather. The following day, the
towing continued. However, there was a sudden storm which caused many logs to break loose and only
11 logs were delivered to the plaintiff’s log ponds. Another 31 logs were later recovered. The plaintiff
claimed damages for the loss of the 40 other logs. The issue was whether, the logs having been lost in a
storm at sea, the defendant could claim that the contract was discharged by frustration. It was held that
the defence of frustration was rejected. In a contract of this nature, a storm must be expected and
would have to be guarded against, especially in the open sea. The defendant is bound to take all
precautions necessary against storms that might reasonably be foreseen. The storm was not a
supervening event as it was not violent enough to make the nature of the defendant’s contractual
obligations radically different from that which he had undertaken.

In applying to the current situation, Samsul made a contract with Indah Travel Consultant to to travel to
Syria, Oman and Jordan from 10th September to 10th October 2013 as he had paid deposit of RM5,000
to buy a travel package. However, on the 30th August 2013, the Minister of Home Affairs issued a
statement strongly advising Malaysians not to travel to Syria due to the political instability in that
country. Section 57(2) is applied when the act to travel to Syria becomes impossible and unlawful due to
political instability in that country which the Indah Travel Consultant could not prevent. However, the
elements of frustration must be fulfilled to be able to discharge by frustration. First element is not
fulfilled as the political instability in Syria can be foresee as the political issues in that country has been
going on for many years and unsafe to travel there. So it can be foreseen that there is political instability
in Syria thus the doctrine is inapplicable. By applying the principle in Goh Yew Chew v Soh Kian Tee
although contradict the current situation, Samsul may not be able to get back his deposit of RM5,000 as
he was bound by the nature of the contract and able to foresee the event, the doctrine is inapplicable.

Second element is not fulfilled as the statement issued by the Minister of Home Affairs that strongly
advising Malaysians not to travel to Syria due to the political instability in that country did not cause
radical change to the nature of the contractual rights and obligations between Samsul and Indah Travel
Consultant. The fact that the travel plans to Jordan and Oman excluding Syria could still be carried out
by the agency and Samsul. By following the principle in Davis Contractors Ltd v Fareham UDC, the
contract between Samsul and the agency was not frustrated as the statement issued by the Minister of
Home Affairs was not a ground for relieving Samsul’s obligation.

Third element was not fulfilled as Samsul himself induced into the contract with Indah Travel Consultant
to include Syria in his travel plan. The act caused by the Samsul’s default will not discharge him from the
contract with the agency. Following the principle in Ocean Tramp Tankers Corporation v V/O Sovfracht,
the doctrine of frustration shall be inapplicable as not only had the agency and Samsul foresaw that the
Syria might not be safe to travel, they also failed to make a provision for it.

Fourth element is not fulfilled as when Samsul entered into the contact with Indah Travel Consultant,
they should be able to contemplate the politic stability in Syria however, they did not make any
provision for it in their contract. By applying the principle in National Carriers Ltd v Panalpina (Northern)
Ltd, there is no frustration as the statement issued by the Minister of Home Affairs did not significantly
change the nature of the outstanding obligations under the contract which Samsul and Indah Travel
Consultant could have contemplated at the time they contracted.

Final element is not fulfilled as there is no unjust to hold the parties to the contract as agreed by Samsul
and Indah Travel Consultant. This will be unjust only to Indah Travel Consultant as they already made a
travel plan for Samsul in a month period and assume that they already book a flight ticket to one of the
country in the travel plan will render them loss because Samsul decided to cancel his travel reservation
with Indah travel Consultant and asked for his RM5,000 deposit to be returned due to the information
from the Minister of Home Affairs regarding Syria. Following the principle in Khoo Than Sui v Chan
Chiau Hee (occurrence of storm) where in such circumstances, Samsul is bound to take all precautions
necessary against political instability in Syria that might reasonably be foreseen. The political instability
in Syria was not a supervening event as it was not violent enough to make the nature of the Samsul’s
contractual obligations radically different from that which he had undertaken. Thus, there is no
frustration.

Since all the elements under discharge by frustration are not fulfilled, the contract is not discharged by
frustration and not be rendered void. Hence, Samsul cannot seek relief under section 57(3) and section
66 of Contract Act 1950 and shall continue with his travel plan to Jordan and Oman as insisted by Indah
Travel Consultant.